The market is looking up for onshore oil and gas operators both in North America and Europe. In the US, the pace of recovery has caught many insiders by surprise. Over the last four months the U.S. land rig count has increased more rapidly on an absolute basis than in any other four-month period over the past decade according to the latest RigZone Review. Furthermore, the rig count has only posted weekly decreases four times in the 37 weeks since bottoming as this chart illustrates:
The rig count rise is impressive and the recovery is developing in a V-shaped pattern. Since the bottom, the industry has added an average of 13 rigs per week, and the best one-week gain came in late-December when 38 rigs went back to work. According to data quoted by RigZone, there were 1,313 land rigs working in the U.S. as of late-February, which is 60% above the June 2009 bottom but still 32% below the August 2008 peak.
The rig construction market is expected to continue to increase as contractors shift towards use of more sophisticated rigs capable of drilling horizontally into shale gas beds. In fact it isn’t just shale gas that is prompting this migration to high spec rigs, according to a Mineweb article, the industry is moving towards multipurpose rigs that can meet a variety of roles, such as geo-technical and subsurface investigation, geothermal and wire-line coring in addition to the most sophisticated fracking drill techniques needed for gas shale. Rig operators with multipurpose rigs find they have a higher capacity utilization rate because they can be turned to any one of a growing range of drill work required.
Meanwhile rig builders and operators are turning their eyes to Europe where oil and gas companies have invested heavily in American drill firms such as BP, Statoil and Total who each struck deals with Chesapeake Energy to acquire the technology and skills to successfully drill gas shale deposits. Europe has extensive onshore gas shale deposits and energy companies are keen to develop opportunities in a market overly dependent on Russian natural gas. According to a FT article, the International Energy Agency estimates unconventional gas resources at 32,511 trillion cubic feet, with half comprising shale gas and the other half made up of gas stuck in tight sandstone formations and in coal beds.
But Europe has two major challenges. The first is environmental. In the US, the land owner directly benefits from resource extraction programs making locals more willing to put up with the trucks, noise and disruption of ongoing drilling operations. But in Europe, mineral rights reside with the state so most benefits pass landowners by. The other challenge at least in the short term are drill rigs. Equipment shortages represent a real headache. The US has up to 2,000 onshore drilling rigs, although not all are operating at any one time. Even so, they dwarf the 50 or so that usually operate in Europe. This big discrepancy could prove crucial as shale needs continuous drilling to maintain production flows because each individual well tends to start with a gush and then loses 70 to 90% of its volume within one to two years.
Europe’s preoccupation with environmental issues will undoubtedly slow the roll out of shale gas projects there but even so the opportunities for manufacturers of piping and for rig constructors are clear. If the last decade was good in the States this decade is going to be about Europe.